Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenue increased by 8% year-on-year to RMB161 billion, demonstrating strong financial performance.
- Gross profit grew by 21% year-on-year, driven by high-margin revenue streams and cost-saving initiatives.
- Domestic games revenue resumed growth, up 9% year-on-year, with successful new titles like DnF Mobile.
- International games revenue also increased by 9% year-on-year, benefiting from robust performance of titles like PUBG Mobile.
- Video accounts' ad revenue increased over 80% year-on-year, fueled by rising short video engagement and live streaming options.
Negative Points
- The deceleration in consumption spending in China is a headwind to advertising eCPM pricing, impacting brand advertising and ad network trends.
- Average transaction value in commercial payments declined year-on-year due to slow consumer spending, affecting fintech revenue growth.
- Consumer loan services revenue decreased year-on-year as Tencent adopted more cautious credit extension policies.
- Operating CapEx increased by 144% year-on-year, driven by investment in GPU and CPU servers, impacting free cash flow.
- Net cash position decreased by 22% quarter-on-quarter, primarily due to share repurchase and dividend payments.
Q & A Highlights
Highlights of Tencent Holdings Ltd (TCEHY, Financial) Q2 2024 Earnings Call
Q: Can management elaborate on the recent upgrade of the advertising technology platform? How will these upgrades attract higher ad spend and support future ad revenue growth potential?
A: (James Mitchell, Chief Strategy Officer, Senior Executive Vice President) Yes, we are looking further back at actions over years rather than months to form a more comprehensive user interest graph. This helps in understanding user interests better and improving click-through rates, which in turn attracts more advertising spend.
Q: Given the recent supportive comments from the state council on digital content, will that change any of the company's R&D resource deployment?
A: (Chi Ping Lau, President) The supportive comments are encouraging, especially for gaming. However, we have already been making long-term strategic investments in the content industry, and we will continue to do so.
Q: Can management share the e-commerce strategy for video accounts, given the slowdown in GMV growth in the short video platform?
A: (Chi Ping Lau, President) Our growth in live streaming e-commerce has been solid. We are building an e-commerce ecosystem within Weixin, leveraging all elements of the Weixin ecosystem to create a more valuable and high-ceiling e-commerce platform.
Q: What are the metrics of higher-margin revenue streams, and how do they contribute to gross profit growth?
A: (James Mitchell, Chief Strategy Officer, Senior Executive Vice President) Gross profit has grown 2.5 times faster than revenue due to a mix shift toward higher-margin revenue streams and efficiency initiatives. We expect this trend to continue, albeit at a slower pace.
Q: How are we planning to sustain the strong growth in domestic and international games?
A: (James Mitchell, Chief Strategy Officer, Senior Executive Vice President) We are optimistic about sustaining growth through a mix of new game releases, ongoing growth in evergreen games, and innovative game modes. We also have a strong content pipeline for future releases.
Q: Can management discuss the impact of AI integration within the ecosystem?
A: (Chi Ping Lau, President) AI is being used for content recommendation, ad targeting, and enhancing user experience in games. We are also developing a large language model (LLM) and deploying it in various applications like Yuanbao for enhanced search functionality.
Q: How do you view the sustainability of DnF Mobile compared to other evergreen games?
A: (James Mitchell, Chief Strategy Officer, Senior Executive Vice President) We are optimistic about DnF Mobile's sustainability due to its high retention rates and a strong content pipeline. The game appeals to a more mature audience, which is conducive to higher ARPU.
Q: How has the recent macro environment impacted the fintech business?
A: (Chi Ping Lau, President) The weak consumption environment has led to a decline in average transaction value, although the number of transactions continues to grow. We believe this is cyclical and expect improvement with government policies encouraging consumption.
Q: Can management discuss the progress and investment cycle for AAA titles?
A: (James Mitchell, Chief Strategy Officer, Senior Executive Vice President) We are continually investing in high-quality games. The boundaries between AAA and system-based games are increasingly blurred, and we aim to create games that become evergreen titles.
Q: How do you view the challenges and opportunities with app store owners in China regarding fees and external payment systems?
A: (James Mitchell, Chief Strategy Officer, Senior Executive Vice President) There are tensions due to the high fees charged by app stores. We have made decisions based on the strength of our IP and user experience. Discussions are ongoing to find a fair and sustainable solution.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
